China and the U.S. represent each other’s single most important foreign relationship, yet also each other’s broadest array of foreign policy challenges. While interdependent, since the fall of the Soviet Union they have lacked a common external danger sufficient to incentivize deep cooperation. Now, with China’s rise, both countries are strong simultaneously for the first time. Significant potential exists for Sino-U.S. cooperation, but fundamental differences in political systems, interests, and perspectives will continue to create friction. In 2012, political transitions in both countries will connect bilateral issues to domestic opinion to an unprecedented degree.

Welcome to the “new normal” for U.S.-China relations. Now many challenges directly affect each country’s national interests and politics, yet cannot be easily sidestepped, finessed, or bargained away because of unprecedented participation of domestic actors. Examples include fundamentally different approaches to trade and economic policies, international norms, and relations with pariah states.

American hopes have dissipated rapidly that China would appreciate America’s post-1978 development assistance and simply embrace existing international norms as it developed economically, without seeking to change factors that it perceived to be unfair. China’s expectations of achieving space and influence on its own terms to right past wrongs have not been met. China’s already-limited willingness to reach accommodation with the U.S.—particularly on Asian issues—will probably decline further as it becomes even more powerful. Despite its coincidence with once-in-a-decade Chinese leadership transition, 2012 will signal challenges to come in Sino-American relations. …